A form of payment to a brokerage in which the brokerage receives a percentage of the value of each transaction that a client orders. Commissions are seen as advantageous to a client because if the client does not make orders, then he/she does not have to pay a broker. However, commissions create an incentive for brokers to make as many transactions as possible; this has resulted in the regulation of commissions by the SEC. The percentage of a commission varies by brokerage, with those charging higher commissions offering a wider variety of investment advisory services. Low-commission brokerages usually offer no investment advice and simply fill orders. See also: Fee .
The fee levied by a broker to undertake a trade on behalf of a customer. Because the amount of the commission for a particular trade is no longer fixed, it can vary considerably among firms. See also discount brokerage firm. full-service brokerage firm .
To what degree are brokerage commissions or other fees negotiable?
The ability to negotiate fees and commissions varies from firm to firm. Some firms are very flexible and give the individual advisors and brokers the ability to negotiate fees to some extent. Some firms offer a discount service via the Internet as well as a full service account. The degree of personal service and advice the investor requires will influence the amount of the discount.
George Riles, First Vice President and Resident Manager, Merrill Lynch, Albany, GA
Securities brokers and other sales agents typically charge a commission, or sales charge, on each transaction.
With traditional, full-service brokers, the charge is usually a percentage of the total cost of the trade, though some brokers may offer favorable rates to frequent traders.
Online brokerage firms, on the other hand, usually charge a flat fee for each transaction, regardless of the value of the trade. The flat fee may have certain limits, however, such as the number of shares being traded at one time.
The commissions on some transactions, such as stock trades, are reported on your confirmation slip. But commissions on other transactions are not reported separately.
In the case of cash value life insurance, for example, the commission may be as large as a year's
The compensation paid to a real estate broker for services rendered in connection with a sale,exchange, or lease of property. In order to be entitled to a commission, the broker must have a written contract for the services and must be licensed in the state. Generally the commission is fully earned if the broker produces a buyer who is ready, willing, and able to close at the terms specified in the listing agreement. This is true even if the seller elects not to accept the offer and withdraws the property from the market or increases the price.
Commission rates. Commissions are negotiated independently between the parties. Setting commission rates in advance by local real estate boards or other organizations is a violation of federal law. Most listing agreements now contain a disclaimer advising that commissions are separately negotiated on a case-by-case basis.
Sales commission amounts. Typically expressed as a percentage of the gross sales price of the property, usually ranging from 6 to 10 percent, although higher and lower percentages may be negotiated.
Leasing commissions. Compensation paid to an agent upon lease execution. It is usually calculated as a certain percentage of the total anticipated rent payments, up to a 5-year term.
Example: If the leasing commission is 4 percent on a 5-year lease at $12,000 per month, then multiply $12,000 by 60 months to arrive at $720,000 and the broker is paid 4 percent, or $28,800. The parties may negotiate a lesser percentage for a term longer than 5 years, to be paid at the 5-year anniversary date.
Leasing commissions —lump sum. Sometimes negotiated to be equal to one or two month's rent, or even a certain amount per square foot. The drawback to this method is that the broker is compensated the same for a 3-year lease as for a 10-year lease.
Leasing commissions —payment over time. Occasionally, leasing agents prefer to receive their commissions as each payment of rent is made, rather than in a lump sum at lease signing. The effect is to provide a guaranteed income for many years.
The broker's fee for purchasing or selling securities or property for a client.
An allowance paid to a salesperson or agent for services rendered.